Pain for SBI's associate banks to stay in Q2: SBI chief

Says associates will report better performance from the subsequent quarter

Associate banks of State Bank of India (SBI) will experience another painful quarter as they align asset quality review accounts with that of the parent, to make way for smoother integration later this financial year.

Four out of the five associate banks posted net losses in the first quarter ended June 2016 (Q1 FY17). Only State Bank of Hyderabad posted net profit at Rs 28 crore. State Bank of Travancore posted loss of Rs 710 crore and State Bank of Patiala loss of Rs 610 crore. State Bank of Mysore reported loss of Rs 475 crore followed by State Bank of Bikaner and Jaipur at Rs 272 crore.

Arundhati Bhattacharya, chairman of State Bank of India, said: "Asset quality reviews (AQRs) at associates are substantially different from ours (at SBI). And we believe, as a group, it is important to align AQR numbers. At the end of the day, something that is stress with us will become stress with them at some point of time."

A part of the AQR alignment done in the first quarter had impacted the bottom line. The balance will be carried out in the current quarter, ending September 2016, impacting profitability. Associates would report better performance from the subsequent quarter, SBI chief said.

Gross non-performing loans of five banks collectively rose to 13.64 per cent in June 2016 from 11.86 per cent in March 2016. Their provision coverage ratio deteriorated from 60.03 per cent in March 2016 to 54.47 per cent.

The Reserve Bank of India (RBI) had asked banks to recognise and make provisions for weak assets under AQR to clean up balance sheets by March 2017. This exercise put pressure on bank books in the short term. However, the AQR is expected to strengthen balance sheets to finance fresh credit in the long term.

SBI intends to merge all five associate banks with itself by March 2017. The boards of SBI and associate banks and the government have already approved the merger. SBI is conducting valuations to firm up share-swap ratio for mergers. However, SBI is yet to announce the sequence and timing for the merger of each bank. It has only indicated that it would first integrate the corporate banking business as 60-70 per cent of the clients were common.

As for retail branches, the group would chalk out circle-wise plans.